Issues Raised by Studying DeFond and Zhang - What Should Audit Researchers Do?

37 Pages Posted: 5 Sep 2014

See all articles by John Donovan

John Donovan

University of Notre Dame - Department of Accountancy

Richard M. Frankel

Washington University in Saint Louis - Olin Business School

Joshua A. Lee

University of Georgia

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Hojun Seo

National University of Singapore

Date Written: July 2014

Abstract

We view audit‐quality choice as one among many that managers make to maximize firm value. We question whether audit‐quality differences among publicly traded companies are of significant interest to investors, clients, and auditors and ask for research on this topic. Relatedly, we ask for research on whether auditors and their clients show behavior consistent with regulated audit quality exceeding the audit quality level demanded absent regulation. We propose that researchers incorporate the competitive advantages of auditors and the institutional features of the audit process into the definition of audit quality. We propose that audit quality research test for externalities and inefficiencies to understand whether auditors and their clients are choosing the efficient level of audit quality. We note the legislative, judicial, and executive powers residing in the PCAOB.

Keywords: audit quality, regulatory intervention, PCAOB

JEL Classification: M3

Suggested Citation

Donovan, John and Frankel, Richard M. and Lee, Joshua A. and Martin, Xiumin and Seo, Hojun, Issues Raised by Studying DeFond and Zhang - What Should Audit Researchers Do? (July 2014). Available at SSRN: https://ssrn.com/abstract=2491135 or http://dx.doi.org/10.2139/ssrn.2491135

John Donovan

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Richard M. Frankel

Washington University in Saint Louis - Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Joshua A. Lee

University of Georgia ( email )

Athens, GA
United States

Xiumin Martin (Contact Author)

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Hojun Seo

National University of Singapore ( email )

15 Kent Ridge Drive, Singapore 119245

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